July 7, 2015
Like all industries experiencing prolonged periods of intense competition fuelled by growth and the promise of profits, there is the ever-present danger of collapse. The tech industry is no exception.
Amid concerns of rapid innovation driving priority employment trends, 95 percent of hiring managers at foremost publicly traded tech firms are finding it difficult to retain top talent, a figure up some 6 percent from 2014, according to the 2015 Technology RiskFactor report from BDO.
A Looming Threat: Will the Bubble Burst?
The warning signs are there for those willing to look beyond the stellar performance of the tech industry in recent times. Experts aren’t debating about whether such indicators are accurate in their prediction. But just how bad is the bubble when compared to that which occurred in 2000?
Mark Cuban, owner of the Dallas Mavericks, blames private investors for wantonly securing equity in tech startups. He also cites their involvement as a key contributing factor to the seriousness of it all. And he’s not alone in his thinking.
Unconventional metrics are inflating and distorting estimations pertaining to turnover. When large scale investments are based on such numbers, the end result can often be underwhelming, if not occasionally catastrophic.
Growing Fears About Increasing Risks
Wherever you look, a calculated risk exposes tech companies to financial ruin. You only need to look to what’s happening in San Francisco where more than 75 percent of tech startups fail.
Another reason for the troubling news involves concerns with merger and acquisition risks remaining at their peak and continuing to forge ahead. And with so many opportunities for market domination, the market has become saturated.
Aftab Jamil, the head of BDO’s Technology and Life Sciences Practices has outlined a number of flow-on effects that threaten the efficacy of the industry, namely acquisition management controls, complying with international regulations and challenges to maintaining internal protocols.
Security and Its Role in Tech Startups
Due to the amount of money changing hands, it’s little wonder that data security is posing as big of a risk as it is. Its ubiquity – 96 percent according to BDO’s report – is responsible for a high degree of apprehension where infringements to intellectual property and copyright violation are concerned.
But what exactly does this mean for tech startups? As an industry that turns upon ideas, such a high level of distrust affects potential working relationships and may affect third-party investment opportunities from the outset.
If startups are to succeed in this type of environment, they need to implement sound operational structures in order to compete with their financed and more established counterparts.
New Rules in Place for Deal Flows
When the FASB and the IASB released a new revenue recognition standard in May of 2014, tech firms were forced to adopt the measures by one of two ways:
- Implementing a full retrospective recast
- Implementing a modified standard when it comes into effect in 2017
As a result, tech startups must familiarize themselves with the changes and conduct themselves accordingly, taking care to avoid accounting oversights and filing errors. In theory, this should level the playing field.
Ultimately, competition will always be fierce, but with the right mindset and approach with regards to forward thinking, many startups will be able to thrive and take full advantage of what the industry has to offer newcomers.
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